Will the Coming Economic War With China End the American Empire?

Somalilandsun – You haven’t heard even a whisper about it in the mainstream media. Yet it’s an event that historians will point to as the first sign of the approaching war. Unlike previous wars, however, this one will not be fought with bombs and guns. And yet it could trigger the most cataclysmic destruction of personal wealth in our lifetime.

As we speak, China is mobilizing resources and gathering allies around the globe in preparation for this war. In league with a small group of “rogue’ nations, they have one purpose in mind: to crush the economic, political and military strength of the United States, around the globe, by targeting America’s Achilles heel: the petrodollar. Their plan is to (by that means and others) send the USdollar (today the world’s reserve currency) into the dustbin of history — which will, among other things, crush the retirement dreams of millions of American citizens.

America’s last great export about to go bust?

We all know that the US is heavily in debt to China. And the US trade deficit with China keeps growing, up to $558 billion in 2011. In fact, it’s now the largest, ongoing nation-on-nation trade deficit in the history of the world. But what most Americans don’t understand is that because of this huge trade deficit, each year the Chinese Central Bank collects billions of excess dollar reserves that they have, until recently, had no good idea what to do with.

For years China simply piled these dollars into their purchase of US treasury bonds. Washington has long loved this arrangement because it helps the US run trillion-dollar deficits, as it spends like crazy without having to raise taxes. But the Chinese are too smart to let this losing arrangement continue — it’s costing them way too much money. With Washington continually creating more trillions out of thin air (click here and here), and record low interest payments being received by the Chinese, for the Treasury bonds they’ve purchased, China understands full well how much they are losing. According to Beijing officials, China lost $271 billion between 2003 and 2010 by holding US Treasuries. And in June of 2011, China’s National Development and Reform Commission announced it could lose another $578 billion if it continues to hold these huge US debts.

Not surprisingly then, the Chinese government has begun to take drastic measures to protect their wealth: Two high-level officials (Zhou Xiaochuan, the head of the Chinese central bank and Xia Bin, a member of the monetary policy committee of the central bank) recently made it clear that they are ready to take action. But China isn’t simply planning to pull all their money out of Treasuries. There’s much more to their plan than that.

China is willing to take some short-term losses for long-term gains, which is why it was no surprise when an overlooked article in the International Business Times revealed a shocking announcement, one that the mainstream media has refused to acknowledge. This article stated that, in a secret alliance with Russia, China has launched what will prove to be the ultimate attack on US supremacy, i.e. an attack on the United States’ last great export machine and its key to global domination for the last 40 years: the petrodollar. Here then was the shot across the bow that has kicked off an economic war between the US and China, one that will lead to the end of the 30-year bull market in US bonds.

Understand that America has gone to great lengths to prevent this from happening. It’s the reason we took down Saddam Hussein, Muammar Gaddafi and why we’re now imposing sanctions on Iran. But with our weakened military and our bloated national debt, China now has the perfect opportunity to take us down. And unfortunately for us, their $3.5 trillion in holdings of US currency helped them launch their first wave of assaults on September 6, 2012. But first, before describing this in more detail, we need to briefly review the history that has led to this assault.

The biggest financial con in history

The year was 1944 and bankers from all the 44 Allied nations gathered in Bretton Woods, New Hampshire. Their mission was to create a set of agreements to manage international trade after WWII. Their agreement, known as The Bretton Woods agreement, established the dollar as the world’s reserve currency.

This international game-changer gave the United States a distinct economic advantage, but with one caveat: every dollar the Fed printed would be redeemable for gold at the rate of $35/oz. This part of the agreement was put in place to ensure that the Fed wouldn’t print dollars with reckless abandon. But of course, the Fed eventually printed and distributed more dollars than it had in gold to exchange. Finally, with massive expenditures on the Vietnam War, the rest of the world became suspicious of America’s ability to pay. So nations began to demand the gold they were promised for their US dollars.

So, in 1971, President Nixon recognized that the US would not be able to meet its obligations and closed the so-called gold window. It was the first American default and it set off a rapid decline in the value of the dollar. Oil prices soared. Inflation soared to 15% and higher. At the same time, GDP fell 3.2% and unemployment rose to 9%. Price/Earnings ratios crashed down, from 16 to 8, and stocks had the worst 15-year period in history — even worse than during the Great Depression. The government then imposed wage and price controls which caused gas shortages around the country.

Then, in 1973, Secretary of State Henry Kissinger hatched a brilliant plan

America had great military might and Saudi Arabia needed protection for its vast oil empire. So, in a stroke of genius, Kissinger exchanged America’s military might for Saudi Arabia’s promise to sell oil for US dollars only. This meant that any country wanting to purchase oil from OPEC was forced to use US dollars. In other words, anytime another country wanted to buy oil from the Middle East, they had to first convert their currency into US dollars and take a loss in that conversion process. And since oil is required in modern economies — and the Saudis are a main player in the oil trade — this put the US in a unique and very powerful position: Countries around the world were hereby pressured into exporting goods and services to the USA in order to get the dollars they needed to buy oil. And where would we get those dollars? Mostly by borrowing money from the central bank of China, the central banks of Japan and the UK, and from all other investors, foreign and domestic, public and private, who wanted to buy US treasury certificates. And to the extent that such purchases of our treasury bonds finally began to lag, our own Federal Reserve would simply create money out of thin air and buy those bonds itself, thereby supplying the US Treasury with unlimited amounts of dollars.

Therefore, to that extent, in order to get its oil, America’s government could, to whatever degree necessary, simply create out of thin air the dollars it needed to buy that oil — which meant that the US could run massive trade deficits. Why did this work so well? It worked because we were exporting the most valuable “commodity’ in the world at that time, the US dollar — the currency that was needed for any other country to buy oil.

The terrible side-effect that eventually came to accompany this racket